medium · Corporate Credit Analysis
An issuer has a 'J.Crew' style covenant carve-out that allows for the transfer of 'Unrestricted Intellectual Property' to a subsidiary.
How does this structural feature typically impact existing senior secured bondholders?
- It improves recovery by diversifying the collateral asset base across new legal entities
- It restricts the sponsor from paying any dividends until the transferred IP is returned to the parent
- It allows the company to move valuable assets out of the collateral pool to secure new senior debt
- It provides bondholders with an additional downstream guarantee from the newly created unrestricted subsidiary
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